Equity LifeStyle Properties, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. ELS is a REIT owning and operating manufactured-home and RV communities, marinas, and related home sales and rental operations. At quarter-end, it owned or held interests in 449 properties with approximately 170,880 sites.
Financial and operating performance
| Metric | Q2 2022 | Six months 2022 | Comparable-period change |
|---|---|---|---|
| Total revenue | $365.3 million | $725.5 million | +10.7% and +14.5%, respectively |
| Net income available to common stockholders | $61.5 million; $0.33 per diluted share | $144.4 million; $0.78 per diluted share | +$0.5 million; EPS unchanged in Q2. Six-month income +$18.1 million and EPS +$0.09 |
| FFO available to common stockholders and OP unitholders | $121.6 million; $0.62 per diluted share | $262.5 million; $1.34 per diluted share | +$4.0 million and +$24.4 million, respectively |
| Normalized FFO | $125.3 million; $0.64 per diluted share | $266.7 million; $1.37 per diluted share | +$7.0 million and +$25.8 million, respectively |
| Operating cash flow | Not separately presented for the quarter | $354.5 million | Up from $328.9 million |
Core Portfolio property-operation revenue, excluding deferrals, rose 4.9% in Q2 and 7.2% for the six months. Related expenses, excluding deferrals and property management, increased 7.0% and 8.6%, respectively, limiting growth in the comparable operating-income measure to 3.3% and 6.2%. Core manufactured-home occupancy was 95.1% in Q2, versus 95.1% a year earlier. Average monthly MH site rent was approximately $753, up from $716.
Six-month RV and marina base rental income in the Core Portfolio increased 13.9%, led by seasonal income (+54.1%) and annual income (+8.9%). In Q2, transient RV and marina income declined 6.6%, which management attributed to poor April–May weather and longer stays reducing transient-site availability. New-home sales increased 28.5% for the six months, to 626.
Balance sheet, liquidity, and capital allocation
At June 30, 2022, total assets were $5.40 billion and total liabilities were $3.88 billion. Balance-sheet debt was approximately $3.27 billion, comprising $2.72 billion of mortgage notes, $496.4 million of term loans, and $47.8 million drawn on the unsecured line of credit. The LOC had $452.2 million of remaining capacity; cash and restricted cash totaled $42.4 million. ELS reported compliance with material debt covenants.
Six-month investing cash outflow was $302.1 million, including $181.0 million of capital improvements; financing cash outflow was $133.4 million. ELS completed a $200 million fixed-rate secured refinancing at 3.36%, maturing in 2034, and a $200 million senior unsecured term loan maturing in 2027 at SOFR plus 1.30%–1.80%. It acquired several RV properties and an adjacent vacant parcel for stated purchase prices totaling approximately $113.3 million. The quarterly distribution increased to $0.41 per share from $0.3625 in the prior-year quarterly distributions. A new $500 million ATM equity program was established; the prior program generated approximately $28.4 million in gross proceeds during the period.
Changes, outlook, risks, and unusual items
- Revenue and earnings growth reflected rental-rate increases, higher RV and marina demand, acquisitions, and more new-home sales. Higher utilities, repairs and maintenance, payroll, property management, and other operating costs tempered operating-income growth.
- Normalized FFO includes $3.1 million of transaction and pursuit costs for unconsummated acquisitions. Q2 other expenses also included these costs; they are not recurring property operating expenses as described by management.
- Management said demand remained strong and occupancy high, and described continued acquisition activity and long-term demand from older and younger customer groups. The filing provides no numerical full-year earnings or FFO guidance.
- ELS identifies inflation and interest rates, financing and refinancing access, home affordability and financing, customer demand, acquisition integration, weather-related transient demand, and COVID-19 uncertainty among relevant risks. Most debt is secured; the company uses interest-rate swaps to manage exposure. A $300 million LIBOR swap had a stated all-in rate of approximately 1.79% at quarter-end; management estimated $8.1 million would be reclassified as a reduction to interest expense over the next twelve months.
- Westwinds/Nicholson Plaza: Ground leases for a 720-site community and adjacent shopping center were set to expire August 31, 2022 without extension options. The lessors dispute resident and property obligations; litigation and arbitration were ongoing, and the lessors sent default notices in July 2022. ELS had made no accrual because it could not predict the outcome or reasonably estimate a loss. The properties generated approximately $6.0 million of NOI in 2021.
- ELS stated that the interim results may not indicate full-year results because of seasonal fluctuations. It reported no material changes in market-risk assumptions, no material changes in internal financial controls, and no off-balance-sheet arrangements.
Important facts for investors to verify
- Subsequent developments and financial effects related to the Westwinds and Nicholson Plaza lease expirations, resident protections, litigation, and arbitration.
- Whether property expense growth—particularly utilities, repairs, payroll, and management—continues to exceed comparable revenue growth.
- Debt and interest-rate exposure, including variable-rate borrowing costs, refinancing needs, swap assumptions, and available LOC capacity.
- Whether seasonal and annual RV demand, transient-site performance, MH occupancy, and home-sale volumes remain consistent with management’s commentary.
- Acquisition returns and the impact of unconsummated-deal costs; FFO and Normalized FFO are non-GAAP measures and are not substitutes for GAAP earnings or operating cash flow.